FINANCING.

What would you do with your refinancing savings?

Low interest rates will make this the second most popular year ever for refinancing, predicts the Mortgage Bankers Association, with only 1998 seeing more refinance activity.

Millions of households will be saving $100, $200 or even more each month when they trade in their mortgage for one with a lower interest rate. We asked area financial planners about how best to use that extra money.

"If you think through where you want to put the money, and start putting it there immediately, then you won't feel the effects of the money. The natural tendency is to start spending it on more stuff."

Instead of acquiring "stuff," Carson Maton says many households would probably benefit from reducing credit card debt, or having the money saved from the refinancing automatically transferred each month from their checking account into a mutual fund, perhaps a fund that includes a broad array of stocks.

Set your financial goals

"What you should do with the money depends on what your goals are, but most people, sadly, don't know what their goals are," observes Glenn Pape, a certified financial planner and national service leader for employee financial planning education at Ernst & Young, Chicago.

How can you determine goals?

"There's an exercise that helps define them. In financial planning workshops, individuals or married couples are asked to write down a list of what they'd do with a windfall of $5,000. Couples compare their lists and begin talking about what the most important things they want are," says Pape.

"People with a child going to college soon might want to pay off debt or avoid debt," adds Pape. "Some people may want to have money automatically deducted each month from their checking and placed in investments. With investing money or paying down debt, you're really not depriving yourself," says Pape. "Rather, you're really making a spending plan. By saving you have money to spend later on."

Should you pay down your mortgage?

"It's a very individual decision, but some older people may want to use the savings . . . to pay down the principal of the mortgage," says Sidney Blum, a fee-only planner with Successful Financial Solutions Inc., Northbrook.

"As they near retirement, a lot of people like to know that their house is paid for; that's the one secure thing in life," says Pape. "That's also why some people refinance from a 30-year fixed mortgage to a 15-year mortgage."

"The first and foremost thing they would want to do is use it [money saved on a refinancing] to pay off any credit card debt."

Think long-range

"You should have a long-range financial plan that tells you where to put the money," suggests Paul Lambshead, a fee-only planner with Lambshead and Walz Inc., Oak Park.

"One possible option if you are not maxing out your retirement contribution, is to put money there. A lot of companies will match employee contributions up to a certain point. At the minimum, you should be putting enough money in the retirement plan to take advantage of employer matching."

"If you are already heavily invested in tax-deferred retirement plans, you might consider putting the money in a good [stock] market index fund," Lambshead advises.

Start an emergency fund

"Make sure that you have an emergency fund," advises Carol C. Pankros, of CCP Inc., a fee-only financial planning service in Palatine.

"If you don't have a rainy day fund equal to three to six months of living expenses, that should be a priority. If you already do have that, then maximize your tax-deferred savings -- your 401K or other retirement plan. Then, if you've done that, make a list of goals and put $100 to $200 every month into an equity mutual fund."